Friday, November 6, 2009

Worries as Rush Into Commodities Slows

From the Wall Street Journal:

The flood of investor cash that has helped drive up the prices of everything from oil to platinum this year is slowing amid worries prices could fall and evidence some of the popular commodity investment products have failed to live up to their promises.

Investors plowed a record $50 billion into commodities this year, helping drive prices for crude oil up 79% and gold 23%, but just $2.2 billion of new money flowed into commodities in October.

That would mark the lowest monthly inflow since July -- when threats of market regulation briefly unnerved investors -- and the second-lowest since November 2008.

On a quarterly basis, inflows into commodity investments have fallen from about $22 billion in the first quarter to $17 billion in the second and $11 billion in the third. The inflows already are more than triple those of 2008. On Thursday, gold closed at a record $1088.70 an ounce.

Many commodity investors missed out on the big gains because they invested in index funds designed to track different commodities, and in many cases those funds didn't do as promised. Other funds have had to stop taking new investments because they became too big for their markets.

But many investors are now worried the liquidity-fueled rally in commodities may soon be over. They say the weakness in the dollar, which has helped drive commodities higher, may soon come to an end. When it does, commodity prices may swing back drastically. Increased worries about tougher regulations down the pike and disappointing returns from some exchange-traded funds are combining to drive investors to look elsewhere....MORE